Abstract

In most OECD-countries income inequality has increased during the last two decades. In this paper, we
investigate whether changes in the overall distribution of income can be attributed to social policy
measures. For most (but not all) countries we find a possible relationship between changing welfare
state policies (as measured by expenditure ratios and replacement rates) and changing income
inequality. Especially the United Kingdom and the Netherlands combined an above-average rise in
inequality with a reduction in the generosity of the welfare system.
A more elaborate budget incidence analysis for the Netherlands indicates that in the period 1981-1997
inequality of disposable household income increased sharply. The two main forces behind this
phenomenon were a more unequal distribution of market incomes and changes in social transfers.
Fundamental social security reforms in the Netherlands indeed seem to have made the income
distribution less equal. However, income inequality in the Netherlands is still below the OECD average at
the end of the observed period.

Atkinson, A.B., and A. Brandolini (1999) 'Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income
Inequality in OECD Countries', Manuscript. Nuffield College, Oxford and Banca d'Italia, Research Department.

Atkinson, A.B., A. Brandolini, P. van der Laan, and T. Smeeding (2000) 'Producing Time Series Data for Income
Distribution: Sources, Methods, and Techniques', Paper prepared for the 26th General Conference of The
International Association for Research in Income and Wealth, Cracow, Poland: August 27-September 2, 2000.

Smeeding, T. (2000) 'Changing Income Inequality in OECD Countries: Updated Results from the Luxembourg
Income Study (LIS)', in: R. Hauser and I. Becker (eds.) The Personal Distribution of Income in an International
Perspective, Berlin, Germany, Springer-Verlag:205-224.